HH: Joined now by United States Senator Tom Coburn from the great state of Oklahoma. Doc Coburn, welcome back.

TC: Hey, glad to be with you.

HH: I want to start with the story at the Daily Caller today. What is your concern about the Department of Education, and private hedge funds, with regards to private education?

TC: Well, we have some evidence that evidently, people inside the Department of Education were leaking some of their advance information to hedge funds, and hedge funds were shorting some of these. You know, we don’t know that that happened, but that’s certainly a possibility.

HH: Now that would be highly illegal, wouldn’t it?

TC: Highly illegal, and both, also highly unethical for government employees to do that.

HH: Why the war on the private education from inside the Department of Education? I’m fairly familiar with this issue, Senator.

TC: Well, I think they are looking at numbers, and graduation rates. And the first GAO report has been disputed, and GAO has actually come back and made a correction that was fairly negative on private education. And it’s not nearly as bad as what was put forward first by GAO, which has caused a big stir from GAO, because usually GAO doesn’t make those kind of mistakes. So that’s number one. And then there’s a couple of people that are out to get them, which is, one of them is Senator Tom Harkin. He doesn’t believe in private sector anything. He believes the government should do everything. So I think they’re being aimed at, and then they’re trying to manipulate it.

HH: Well, we’ll come back and follow that closely, because that will be an enormous scandal if in fact DOE is tipping hedge funds to short sell for profit education schools. Let me ask you now about another GAO story released on Tuesday that finds extraordinary amounts of duplication effort in the federal government, at least $100 billion, maybe as much as $200 billion. I gather you requested this study, so you’re not going to be very surprised by it.

TC: I wasn’t surprised at all. As a matter of fact, this is just the first third of the federal government. So…and next year, we’ll get another on another third, and the next year, we’ll get the last third. And every year thereafter, they have to issue this report on duplication. And you know, it just shows you that we don’t know what we’re doing, we have multiple programs doing the same thing. You know, my favorite of all of it is that we have twenty different agencies operating 56 programs on financial literacy.

HH: Right.

TC: And we’re going to lecture the American people about financial literacy, when in fact we’re running these kind of deficits and don’t know what we’re doing?

HH: I found the fact that there are 82 federal programs to improve teacher quality…

TC: Yeah.

HH: …to be really quite amazing, because obviously, one of those has got to be the best program, and one of them has got to be the worst. But I’ll bet you the federal government has never tried to categorize which of their teacher quality programs are good, and which are bad.

TC: Yeah, none of these programs have metrics on them. And members of Congress have written duplicative programs rather than research what’s out there, and try to fix what’s broken. What they do is just pass another law.

HH: Well now, today the Wall Street Journal publishes a poll, Senator Coburn, saying that the American people don’t support cuts in entitlement spending, don’t support entitlement reform. What do you make of that?

TC: Well, I think it depends on who they ask. If you ask people who are getting entitlement spending, and you don’t counter for that, if you don’t have a good mix as a ratio of those that are getting entitlement spending to those that are not, if you poll people who are not getting entitlement spending, I think most of them under, 55 and under are going to say yeah, we need to fix it. So it doesn’t matter. If we don’t fix entitlement spending, there’s no future, economically, for our country.

HH: Do you expect the House budget to actually have serious entitlement reform in it when it’s unveiled, either this month or next?

TC: Yes, I do.

HH: And will it be enough, in your view, that if adopted, it will reverse the fiscal crisis?

TC: Well, it’ll start us down. We have to, Hugh, we have to take $8 trillion dollars out of the budget over the next ten years to get out of real problems.

HH: $8 trillion? That’s $800 million a year.

TC: That’s $800 billion a year.

HH: $800 billion. Can that be outlined in one budget? I mean, can the path be laid out in one budget?

TC: Sure. You will see Paul Ryan lay that out. Now that’s to get out of trouble. That’s not to balance the budget.

HH: But what do you mean by…what’s that mean, get out of trouble?

TC: Well, we are in a death spiral, because interest rates are going to rise. And our interest costs are historically at 6% of our debt. We’ve paid this year at 2% of our debt. It tomorrow it was 6%, what you would have is $840 billion dollars more in deficit spending than what we have today.

HH: Holy moly.

TC: $840 [million] more. So you know, we don’t have any choice except to…we can raise everybody’s taxes to where nobody has any future, or we can reform entitlements, and we can create a proper perspective that’ll restore a great view, and a great future for America.

HH: When we last spoke a few weeks ago, there was an effort, a bipartisan effort to get together and come up with a proposal across some of these things. Has that advanced in the Senate any further?

TC: It’s working. We meet twice a week, and we’re working on it.

HH: And when…how will that be rolled out? Will that be in conjunction with the House budget?

TC: No, it’ll probably be rolled out after we get a blessing that the administration will swallow hard and take it. But even if they don’t, once we negotiate it in the Senate, that’s what we’re going to put on the Senate floor.

HH: Will a federal VAT tax be a part of that, Tom Coburn?

TC: No, sir. Absolutely not.

HH: What about the end of the housing deduction?

TC: No, what there’ll be is there’ll be a limitation on it for one home, and a limitation on the size of the home, probably, $500,000 dollars.

HH: Oh, my gosh. Won’t you kill the real estate market?

TC: I don’t think so.

HH: Oh, boy, that’s going to be tough to swallow. So you’ve got Republicans who agree with that?

TC: Well, you know, the point is that that’s what the Deficit Commission had, so that’s what we’re starting from. We’re not talking about any of the things that we’re actually doing right now.

HH: Okay, in terms of the cost duplication that the GAO found, will that be part of your proposal, to go in and cut stuff like that?

TC: Well, we’re going to have significant cuts in discretionary spending, but this is new, and we won’t go back and approach that. But that’s some of the extra stuff that we’re going to be able to get. So if there’s $100 billion dollars a year there, and I think that’s conservative, that helps us to another trillion dollars.

HH: Yeah, but I’m wondering, how would you propose to take away, for example, the mortgage interest deduction if the government hasn’t even done something like get rid of 80 teacher quality programs?

TC: Well, here’s the goal. The goal is to eliminate tax credits where we quit sending capital in the wrong direction, because the government says to send it that way. And so what you do is you take any money that’s savings from that, and lower everybody’s rates. So the whole deal is to get a renewal of our economic endeavor by lowering everybody’s income tax rates. So it’s a net net.

HH: Oh, I understand that, but I do not understand how you expect to sell something that would dramatically devalue people’s homes. That’s what I…

TC: There’s nothing that dramatically devalues people’s home. What we’re saying is the interest rate deduction on a $500,000 dollar home is deductible. If you have a million dollar home, and this is forward, it’s not what people have now, it’s moving forward. So if you already have it…

HH: No, no, I’m just saying that if you do that, though, you’ll lower the value of every new home bought, because the value of the interest deduction’s priced into that. Isn’t housing dying right now?

TC: Well, let me tell you something, Hugh, the average price of a home in America is not $500,000 dollars. It’s right around $210,000 dollars right now. That’s the average price.

HH: But the latter…well, we’ll have to come back and talk about this…

TC: And so you’re going to cover, we’re going to cover 95% of the people in their homes today.

HH: I’ll come back and talk with you about it next time, because that’s a disaster from the home building industry’s perspective. But I’ll talk to you about it next time. Tom Coburn of Oklahoma, thank you.